Concept #1: Time Value of Money and Using Timelines
Concept #2: Time Value of Money Equation: Future Value
Practice: The formula FV = PV * (1 + r)n is best used for:
Practice: You invest $4,545 in Clutch Bank today earning a juicy 10% annual interest. What is the value of your investment in one year? What is the value of the investment after two years?
Practice: The formula PV = FV (1 + r)n is best used for:
Practice: You are saving up $12,000 for a luxurious European vacation two years from now. How much money would you need to invest today at Clutch Bank, earning their juicy 10% annual interest, to have enough for your vacation? How much would you need to invest today, if instead you could only earn 6% interest?
Example #1: Time Value of Money
Concept #3: Annuity
Practice: Today, you purchased a $1,000 bond that matures in 5 years. The bond pays annual interest of 10%. Visualize these cash flows on a timeline.